April 25, 2011

Judge Wants Info on Bank Selection Process in Class Action Settlement

Updated 2:19 p.m.

The plaintiffs' lawyers overseeing the $750 million settlement in a discrimination suit brought by Native American farmers and ranchers proposed using five banks in which to deposit and invest settlement funds until the money is disbursed to class members.

Four banks—Bank of America Corporation, Wells Fargo & Company, Citigroup, Inc. and PNC Financial Services—would each receive about $150 million from the compensation fund payment to invest, the plaintiffs’ lawyers in Keepseagle v. Vilsack said in a court filing (PDF) April 22 in U.S. District Court for the District of Columbia.

In addition, a fifth bank, Bank2 of Oklahoma, would receive about $18 million to hold. The plaintiffs’ team, led by Joseph Sellers of Washington’s Cohen Milstein Sellers & Toll, said Bank2 is owned by the Chickasaw Nation and is the largest mortgage lender to Native Americans. Sellers said the plaintiffs' team sought out a Native American-owned bank to reinforce the settlement's connection with the Indian community. The United States Department of Agriculture helped research the identification of a bank.

U.S. District Judge Emmet Sullivan said in an order today that he wants the plaintiffs’ lawyers to discuss the bank selection process at a hearing Tuesday. The lawyers are meeting with Sullivan to go over a dispute about attorneys’ fees and costs. The judge asked the lawyers to come prepared to discuss, among other things, “the credentials” of the selected banks.

Sellers said this afternoon the proposal from the plainiffs' team, which includes Anurag Varma of Patton Boggs, struck a balance between protecting settlement funds and providing some return on the investment. The plaintiffs' lawyers conducted extensive interviews with banks to determine soundness. Sellers said the lawyers conducted a formal request for proposal process to selected national U.S. banks.

The five designated banks would hold and invest settlement money until the presiding judge has approved disbursement to the class. Sellers said in court papers that the plaintiffs’ team will work with the five banks to “adopt prudent investment policies” to minimize the risk of investment loss while trying to maximize investment return. The class lawyers said the settlement money is being divided among five banks in the interest of protecting the money.

Keepseagle’s lawyers said they anticipate the settlement funds will be invested in a range of interest bearing accounts, including money market accounts and certificates of deposit. The attorneys propose using segregated trust/escrow accounts to “reduce the risk that the invested funds will be affected by a possible bank failure.”

Justice Department lawyers said in a recent hearing in the case that the government will not take a position on selecting banks in which to deposit settlement funds. The settlement agreement said the government cannot be held liable for the protection of the deposited funds, “regardless of bank failure, fraudulent transfers, or any other fraud or misuse of funds.”

A sixth bank, Eagle Bancorp Inc., which is based in Bethesda, Md., would coordinate the disbursement of settlement money to class members. Class members would receive checks from Eagle, the plaintiffs’ lawyers said.

The Eagle account, the lawyers said, would be fully insured by the Federal Deposit Insurance Corporation. The attorneys said there’s no risk of institution failure when all of the settlement money is transferred to Eagle.